Section 25F was enacted in 2025. The IRS has not yet issued final regulations under the statute. This means several important implementation questions remain open — and organizations operating in the program's first years must make methodology decisions before those questions are definitively answered.
The open questions
Income verification methodology. The statute requires that scholarship recipients have household income at or below 300% of "area median gross income." The phrase "area median gross income" does not match precisely with any standard published data series. HUD publishes area median income (AMI) figures used extensively in housing programs, but the Section 25F phrase is "area median gross income" — a distinction that may or may not matter when final regulations issue.
SGOs in the interim must choose a methodology: use HUD AMI figures (the most accessible and geographically calibrated data), develop their own local income calculations, or use some other approach. Whatever methodology is chosen should be documented, and SGOs should build their systems with the capacity to update methodology when final regulations issue.
Qualified expense line-drawing. The Coverdell expense categories provide the statutory framework, but their application in specific contexts requires case-by-case analysis that final regulations will eventually clarify. Examples:
A Christian after-school enrichment program that combines academic tutoring with ministry activities: how much of the cost qualifies under Coverdell? The academic component seems clearly within scope. The ministry component seems clearly outside it. But programs that weave the two together require a documented allocation methodology.
A private school that operates across multiple buildings on separate campuses — is this one school or multiple for purposes of the multi-school distribution requirement? The statute does not say, and different organizations are making different decisions in the interim.
Receipt content requirements. A Section 25F tax credit receipt is not the same as a charitable contribution receipt under Section 170. The specific information that must appear on a Section 25F receipt for a donor to successfully claim the credit has not been specified in IRS guidance. SGOs are designing their receipt systems based on the statutory language and analogous state program guidance, with the expectation that they will need to update those systems when guidance issues.
Multi-state operation rules. The statute is primarily designed around single-state SGO operations. Organizations that operate across state lines — a diocese that spans state boundaries, a private school consortium with schools in multiple states — face questions about which state's approval they need, what their reporting obligations are in each state, and how the geographic scope of donor eligibility works. These questions await regulatory clarification.
How to operate prudently with open questions
Document every methodology decision. When the statute is ambiguous, write down the rationale for the position you take, the alternative you considered, and why you chose what you chose. When final regulations issue, this documentation makes any required adjustments straightforward and demonstrates good faith.
Build systems that can be updated. Avoid one-time implementations of income verification workflows, receipt generation, or state reporting systems. The regulatory landscape will evolve, and systems that cannot be reconfigured without significant cost will be expensive to maintain.
Do not wait for final regulations to begin formation. Final regulations may issue as late as 2026. Organizations that wait will not complete state approval in time to be operational in 2027. The statutory requirements are clear enough to structure formation work around — build on the statute and update when regulations fill in the gaps.
Course outline
Module 02